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(Kitco News) - The R-word is once again rearing its ugly head, this time coming from TD Securities, with analysts saying that markets are pricing in a 50% possibility that the U.S. economy contracts in six months.

However, the analysts acknowledge that they are only pricing in a 33% chance that the U.S. slips into recession in the second half of the year.

“While this might appear at odds with market pricing, we are cautious about fading the market just yet given the recent weakening in the data momentum and the negative feedback loop that exists between financial conditions and economic activity,” they said in a report.

Although, with interest rates at low levels, the analysts acknowledge that it is difficult to use the bond market as a perfect recession metric; however, they add that the current price action highlights growing risks in the financial markets.

“Over the past month, the market has steadily moved hike expectations into the future. This suggests that there is some probability of easing being priced in,” they said. “It is notable that the odds of a rate cut by September are currently higher than the odds of a hike.”

The analysts also admit that the risks aren’t enough to force the Federal Reserve to reverse its monetary policy course, which was just established in December. They said that a recession would have to be “imminent” for the Fed to undo its December rate hike.

Although bond markets see fairly even odds of a recession, TDS notes that the economic conditions, while weakening, are not signaling impending doom just yet. The worst sector of the U.S. economy has been manufacturing, which the analysts note has been in the midst of a recession for the past year “due to headwinds from a strong dollar, low energy prices and weak global demand.” They note that the measure of manufacturing growth, the Institute for Supply Management Purchasing Managers Index, has been in contraction territory for the last four consecutive months.

The one bright spot in the U.S. economy remains domestic demand and could be the wild card for the economic outlook, according to TDS.

TDS’s report was released on the same day that Fed Chair Janet Yellen testifies before the U.S. House of Representatives Financial Services Committee. In her opening statement released Wednesday morning, she acknowledged that financial conditions have become less supportive for economic growth.